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New Crypto Rules in UK in the Wake of Terra Collapse

Written by: Nidhi Kolhapur

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Nidhi Kolhapur

Nidhi is a Certified Digital Marketing Executive and Passionate crypto Journalist covering the world of alternative currencies. She shares the latest and trending news on Cryptocurrency and Blockchain.

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May 21, 2022

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Terra (LUNA) saw a complete and total implosion this week, which saw the price of LUNA drop from $62 on May 9 to less than a cent on May 14. Bloomberg reported on Friday that the UK’s financial regulator and finance ministry, the Treasury, will investigate the collapse of the Terra ecosystem’s crypto tokens while developing new laws for crypto assets.

When the Financial Conduct Authority and the Treasury work on the guidelines later this year, Sarah Pritchard, the FCA’s executive director for markets, told Bloomberg that recent market turbulence in stablecoins “will clearly need to be taken into account.”

Terra’s UST algorithmic stablecoin went as low as 23 cents on May 13, while the LUNA token, which was created to keep the UST algorithmic stablecoin from being volatile, dropped 96 percent at one point. In theory, an algorithmic stablecoin maintains its peg using solely software and rules, implying that it is not backed by collateral. Instead, the token’s code, or smart contract, can raise supply when the price falls and decrease supply when the price rises.

What will happen to the stablecoins?

According to senior Bloomberg analyst Mike McGlone, algorithmic stablecoins that rely on market growth may be phased out for the time being.

The commodities expert argues the recent collapse of Terra (LUNA) and its stablecoin TerraUSD (UST) taught the crypto community a lesson about the hazards of algorithmic stablecoins and helped purge the market of surplus digital assets in a new interview with Cointelegraph. According to McGlone, the market crash will allow the crypto community to refocus on revolutionizing the banking industry through the use of digital assets.

While the markets may be done with algorithmic stablecoins in the immediate future, McGlone believes they will have a place in the future provided the underlying flaws are resolved.

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Nidhi Kolhapur

Nidhi is a Certified Digital Marketing Executive and Passionate crypto Journalist covering the world of alternative currencies. She shares the latest and trending news on Cryptocurrency and Blockchain.

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